PAYMENT SYSTEMS ACT 2022

(NO. 2 OF 2022)

PASSED by the National Parliament this 27th day of July 2022.

(This printed impression has been carefully compared by me with the Bill passed by Parliament and found by me to be a true and correct copy of the Bill)

David Kusilifu
Clerk to National Parliament

ASSENTED to in Her Majesty’s name and on Her Majesty’s behalf this 9th day of September 2022.

Patteson John Oti
Acting Governor-General

Date of Commencement: see section 2.

AN ACT TO PROVIDE FOR PAYMENT SYSTEMS, AND FOR RELATED PURPOSES.

ENACTED BY THE NATIONAL PARLIAMENT OF SOLOMON ISLANDS.

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Table of provisions

PART 1 PRELIMINARY MATTERS ................................................... 1

• 1 Short title ................................................................................................... 1
• 2 Commencement ......................................................................................... 1
• 3 Definitions .................................................................................................. 1
• 4 Act binds the Crown ................................................................................... 5

PART 2 PAYMENT SYSTEMS AND PAYMENT SERVICES ....................... 5

• 5 Payment system ........................................................................................ 5
• 6 Clearing system ......................................................................................... 6
• 7 Settlement system ..................................................................................... 6
• 8 National payment framework ................................................................... 6
• 9 Payment services ....................................................................................... 7
• 10 How payment systems and payment services are regulated ................... 7

PART 3 ROLE OF CENTRAL BANK ........................................................... 8

• 11 Central Bank has dual regulatory and operational role ........................... 8
• 12 Central Bank responsible for regulating and overseeing national payment framework ................................................................................................... 8
• 13 Functions of Central Bank in regulating and overseeing national payment framework ................................................................................................... 8
• 14 Central Bank may provide operational facilities ...................................... 9
• 15 Central Bank may cooperate with other regulators ............................... 10
• 16 Advisory council ...................................................................................... 10

PART 4 LICENSING .................................................................................. 11

• 17 Restrictions on operating payment system or providing payment service ................................................................................................................... 11
• 18 Application for licence ............................................................................ 11
• 19 Criteria for issue of licence ................................................................... 12
• 20 Determination of application .................................................................. 13
• 21 Licence terms, conditions and endorsements ....................................... 14

PART 5 PAYMENT SYSTEM RULES ........................................................ 19

• 22 Central Bank may amend licence terms, conditions or endorsements ................................................................................................................... 14
• 23 Duration of licence .................................................................................. 15
• 24 Renewal of licence .................................................................................. 15
• 25 Notice of issue or renewal of licence ...................................................... 16
• 26 Licence is non-transferable ..................................................................... 16
• 27 Suspension of licence .............................................................................. 16
• 28 Cancellation of licence ........................................................................... 17
• 29 Procedure for cancellation ..................................................................... 18
• 30 Payment system must have rules ........................................................... 19
• 31 Content of payment system rules ........................................................... 19
• 32 Central Bank may vary or revoke rule ..................................................... 20
• 33 Restriction on operator’s change to payment system ............................ 21

PART 6 SETTLEMENT .............................................................................. 21

• 34 Payment system must be operated in accordance with this Part ................................................................................................................................. 21
• 35 Settlement ................................................................................................. 22
• 36 Settlement accounts ................................................................................ 22
• 37 Settlement agent ..................................................................................... 22
• 38 Netting ...................................................................................................... 23
• 39 Finality of settlement .............................................................................. 23
• 40 Collateral for payment and settlement ................................................... 23

PART 7 MONITORING AND ENFORCEMENT ......................................... 23

• 41 Licence holder must report to Central Bank .......................................... 23
• 42 Central Bank may require information from licence holder ................... 24
• 43 Central Bank may require licence holder to provide audited financial statements ................................................................................................... 25
• 44 Central Bank may appoint investigator ................................................... 25
• 45 Investigator’s power to obtain information or documents ...................... 26
• 46 Investigator’s power to enter and search place ...................................... 27
• 47 Central Bank may give directions ........................................................... 27
• 48 Scope of directions .................................................................................. 28
• 49 Central Bank may require audit of accounts etc .................................... 29
• 50 Central Bank must not disclose information .......................................... 30
• 51 Retention of records ................................................................................ 30
• 52 Compliance by agent or third party with AML legislation ...................... 31

PART 8 INSOLVENCY OF LICENCE HOLDER OR PARTICIPANT .............. 34

• 53 Approval required for outsourcing arrangement ................................... 31
• 54 Approval required for use of agents ...................................................... 32
• 55 Outsourcing and use of agents: liability of licence holder ..................... 33
• 56 Notice of insolvency proceeding ............................................................. 34
• 57 Insolvency administrator bound by netting arrangement or rules ........... 34
• 58 Preservation of rights ............................................................................... 35
• 59 Conflict of laws ......................................................................................... 35

PART 9 ELECTRONIC BANKING AND FUNDS TRANSFER ..................... 35

• 60 How cheque may be presented .............................................................. 35
• 61 Electronic presentment of cheque ......................................................... 36
• 62 Drawee bank may require physical presentment ................................... 36
• 63 Enforceability of electronic funds transfer .............................................. 37
• 64 Issue of electronic money ....................................................................... 37
• 65 Conditions that apply to issuer of electronic money .............................. 37

PART 10 CONSUMER PROTECTION ....................................................... 38

• 66 Transparency of fees charged to consumers of payment services .......... 38
• 67 Transparency of terms and conditions of payment service ................... 39

PART 11 MISCELLANEOUS MATTERS ................................................... 39

Division 1 Delegation etc.

• 68 Delegation by Central Bank ................................................................... 39
• 69 Directions by Minister to Central Bank ................................................. 40

Division 2 Offences and penalties

• 70 Offence of false and misleading conduct .............................................. 40
• 71 Criminal liability of directors and officers ............................................ 40
• 72 Administrative penalties ...................................................................... 40

Division 3 Regulations

• 73 Regulations ........................................................................................... 41
• 74 Recovery by Central Bank of costs of discharging functions under this Act ................................................................................................................... 42

PART 12 CONSEQUENTIAL AMENDMENT AND TRANSITIONAL PROVISIONS ........................................................................................................... 43

• 75 Central Bank of Solomon Islands Act 2012 amended ........................... 43
• 76 Transitional provisions .......................................................................... 43

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PART 1 PRELIMINARY MATTERS

1 Short title

This Act may be cited as the Payment Systems Act 2022.

2 Commencement

This Act commences on the day appointed by the Minister by notice in the Gazette, and one or more notices may be given appointing different dates for different provisions.

3 Definitions

In this Act, unless the context otherwise requires:

“arrangement” means any contract, agreement, plan, procedure or understanding, whether express or implied and whether legally enforceable or not;

“bank” has the same meaning it as in section 2(1) of the Financial Institutions Act 1998;

“Central Bank” means the Central Bank of Solomon Islands referred to in section 3 of the Central Bank of Solomon Islands Act 2012;

“central counter-party” means an entity that is the buyer to every seller and the seller to every buyer in a settlement system;

“clearing” means the process of any or all of transmitting, reconciling, and confirming transfer instructions before settlement; and includes the netting of transfer instructions and the establishment of final positions for settlement (and “clear” has a corresponding meaning);

“clearing house” means an entity that provides clearing or settlement services for a system, including the Central Bank;

“clearing system” has the meaning given to it in section 6;

“consumer”, in relation to the provision of a payment service, means the person who contracts with the provider of the payment service for the provision of the service;

“document” means a document in any form, and includes: (a) any writing on any material; and (b) information recorded or stored by means of a tape recorder, computer, or other device; and (c) a book, graph, or drawing; and (d) a photograph, film, negative, tape, or other device in which one or more visual images are embodied so as to be capable (with or without the aid of equipment) of being reproduced;

“electronic money” means monetary value represented by a claim on the issuer that is: (a) stored electronically, including magnetically, or in any other tangible or intangible device (such as a SIM card or a software); and (b) issued on receipt of funds for the purpose of making payment transactions; and (c) accepted as a means of payment by persons other than the issuer;

“endorsement” means an endorsement of a licence under section 64 for the issue of electronic money (and “endorse” has the corresponding meaning);

“filing”, of a document with the Central Bank, means delivery of the document to, acceptance of the document by, and a record of the delivery and acceptance of the document being made by, the appropriate officer or employee of the Central Bank;

“information” includes information (whether or not in its original form) that is in the form of a document, a signature, a seal, data, text, images, sound, or speech;

“insolvency” means an insolvency in any form, whether corporate or personal, and includes an insolvency proceeding;

“insolvency administrator” means the person who is appointed to administer an insolvency, such as a liquidator, an assignee, a trustee, a receiver, an administrator, or a statutory manager;

“insolvency proceeding” means any proceeding arising out of an insolvency, such as liquidation, bankruptcy, receivership, voluntary administration, or statutory management;

“intraday credit” means credit extended and reimbursed within a single business day;

“in-house payment system” has the meaning given to it in section 5(3);

“licence” means a licence for the operation of a payment system or the provision of a payment service issued under this Act;

“licence holder” means the holder of a licence;

“licensed financial institution” has the meaning it has in section 2 of the Financial Institutions Act 1998;

“Minister” means the Minister responsible for finance;

“national payment framework” has the meaning given to it in section 8;

“netting” means the conversion into one net claim or obligation, or the set-off of claims and obligations, that result from transfer instructions that a participant or participants either issue to, or receive from, one or more other participants (with the result that only a net claim can be demanded or a net obligation can be owed): (a) whether on a bilateral or a multilateral basis; and (b) whether or not through the interposition of an operator of the settlement system or a central counterparty; and (c) whether or not the obligations or claims constitute mutual credits, mutual debts or other mutual dealings; and (d) whether or not the obligations or claims are denominated in Solomon Islands currency;

“netting rules” means the rules of a payment system that relate to netting claims or obligations of settling participants in a settlement system comprising or included in the payment system;

“operator”, in relation to a payment system, means the operator of the payment system;

“participant”, in a payment system, means a party that is entitled under the rules of the payment system to transfer, clear or settle funds or securities with other participants in the same system, whether directly or indirectly;

“payment instrument” means a personalised device or agreed set of procedures used by the user of a payment service to initiate a payment order;

“payment order” means an instruction to the provider of a payment service requesting the execution of a payment transaction;

“payment service” has the meaning given to it in section 9;

“payment system” has the meaning given to it in section 5;

“payment transaction” means an act, initiated by the user of a payment service, of placing, transferring or withdrawing funds;

“prescribed” means prescribed by regulations made under this Act (and “prescribe” has a corresponding meaning);

“provider”, in relation to a payment service, means the provider of the payment service;

“regulations” or “the Regulations” means regulations made by the Central Bank under this Act (and “by regulation” has a corresponding meaning);

“rules”, of a payment system, means the rules made under Part 5;

“settle” means to discharge an obligation or obligations by the transfer of funds or securities between 2 or more parties (and “settlement” has a corresponding meaning);

“settlement rules” means the rules of a payment system that relate to a settlement system that is part of the payment system;

“settlement system” has the meaning given to it in section 7;

“system” means a payment system, clearing system or settlement system;

“term”, of a licence, includes a restriction imposed as a term of the licence;

“transfer instructions” means instructions for the transfer of funds or securities;

“working day” means a day of the week that is not: (a) Saturday or Sunday; or (b) a day that is defined as, or declared to be, a public holiday under any Act.

4 Act binds the Crown

This Act binds the Crown.

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PART 2 PAYMENT SYSTEMS AND PAYMENT SERVICES

5 Payment system

(1) A “payment system”: (a) is a system or arrangement for the transfer, clearing, or settlement of funds or securities; and (b) comprises or includes a clearing system and a settlement system; and (c) may include the provision of a payment service. (2) However, for the purposes of this Act, a payment system does not include the following: (a) a payment system operated by a clearing house that is recognised by any other law applying in Solomon Islands; (b) an in-house payment system; (c) a payment system that is excluded by any other law applying in Solomon Islands from the operation of this Act. (3) An “in-house payment system” is a payment system that: (a) is operated solely for the internal administrative purposes of its operator; and (b) accordingly does not involve the transfer, clearing, or settlement of funds or securities for any other person.

6 Clearing system

A “clearing system”: (a) is a system for presenting and exchanging at a single location information relating to the transfer of funds or securities; and (b) may include a mechanism for calculating the position of a participant in the system on a bilateral or multilateral basis.

7 Settlement system

A “settlement system” is a system: (a) for settling payment obligations; and (b) for settling obligations in relation to securities.

8 National payment framework

The “national payment framework” means the whole of the services in Solomon Islands that are associated with: (a) the sending, receiving and processing of orders of payment or transfer of money in domestic or foreign currencies; and (b) the issuance and management of payment instruments; and (c) payment, clearing and settlement systems, including those processing securities; and (d) the arrangements and procedures associated with those systems and services; and (e) providers of payment services (including operators of payment systems that include a payment service), participants in payment systems and any third parties acting on behalf of them, either as an agent or by way of outsourcing arrangements, whether entirely or partially operating inside Solomon Islands.

9 Payment services

A “payment service” is a service enabling any one or more of the following: (a) making cash deposits and withdrawals; (b) the issue or acquisition of payment instruments; (c) effecting remittances; (d) any other service related to the transfer of money (including the issue of electronic money but excluding the provision of solely online or telecommunication services, or network access).

10 How payment systems and payment services are regulated

A payment system is regulated through: (a) the requirement that an operator of a payment system or a provider of a payment service must be licensed to do so; and (b) the requirement that an operator of a payment system or provider of a payment service must comply with this Act, the Regulations, any directions or guidelines given or issued by the Central Bank, and licence terms and conditions; and (c) supervision by the Central Bank exercising its powers and functions under this Act and the Regulations.

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PART 3 ROLE OF CENTRAL BANK

11 Central Bank has dual regulatory and operational role

The Central Bank has: (a) the regulatory role set out in sections 12 and 13; and (b) the operational role set out in section 14.

12 Central Bank responsible for regulating and overseeing national payment framework

(1) The Central Bank is responsible for the regulation and oversight of the national payment framework as a whole and any of its components. (2) The Central Bank must regulate and oversee the national payment framework: (a) primarily, to ensure its safety and efficiency; and (b) otherwise, to advance the public interest in the proper functioning of payment systems, and in particular: (i) the public interest in the promotion of competition in the market for payment services; and (ii) the protection of consumers of payment services.

13 Functions of Central Bank in regulating and overseeing national payment framework

For the purposes of regulating and overseeing the national payment framework, the Central Bank has the following functions: (a) to formulate policies for the continuous modernisation of the national payment framework; (b) to license operators of payment systems and providers of payment services; (c) to establish terms and conditions that apply individually or collectively to licences issued under this Act; (d) to make regulations under this Act; (e) to monitor and enforce compliance with: (i) this Act and the Regulations; and (ii) the terms and conditions that apply individually or collectively to licences issued under this Act; (f) to take all steps to promote and facilitate the work of the advisory council established under section 16; (g) to perform such other functions relating to payment, clearing, or settlement systems that are necessary for or ancillary to the regulation of those systems; (h) in accordance with this Act, to make policies and give or issue directions and guidelines for the operation of payment systems and the provision of payment services.

14 Central Bank may provide operational facilities

The Central Bank may do one or more of the following things for the purpose of enabling a party to operate or participate in a payment system: (a) establish one or more payment systems; (b) own, or participate in the ownership of, one or more payment systems; (c) operate, or participate in the operation of, one or more payment systems; (d) act as a central counter-party in a payment system; (e) for the purpose of clearing and settling funds, hold cash accounts for the operator of and participants in a payment system; (f) for the purpose of clearing and settling securities, hold securities accounts for the operator of and participants in a payment system; (g) subject to taking adequate collateral, extend intraday credit to participants in a payment system; (h) for the purpose of the operation of a payment system, hold securities accounts; (i) act as a central securities depository for Government securities or corporate securities, or both.

15 Central Bank may cooperate with other regulators

(1) The Central Bank may cooperate with: (a) any other regulator of licensed financial institutions or of other entities directly or indirectly involved in payment systems operating in Solomon Islands; and (b) any other regulator of capital or securities markets in Solomon Islands; and (c) international monetary authorities and other organisations responsible for the regulation and supervision of payments. (2) For the purpose of cooperation, the Central Bank may enter into a memorandum of understanding with a regulator referred to in subsection (1).

16 Advisory council

(1) The Central Bank may by regulation establish an advisory council for the purpose of advising the Central Bank as to the regulation and oversight of the national payment framework in Solomon Islands. (2) The advice of the council may include (but is not limited to) advice relating to setting operational and technical standards for payment systems. (3) Regulations establishing the council: (a) must prescribe: (i) the composition of the council; and (ii) matters on which the council is competent to advise; and (iii) the procedure that the council must follow; and (b) may prescribe any other matter relevant to the functions and work of the council.

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PART 4 LICENSING

17 Restrictions on operating payment system or providing payment service

(1) A person must not operate a payment system or provide a payment service unless that person is licensed under this Act. (2) Subsection (1) does not apply to the Central Bank. (3) Subsection (1) applies to a licensed financial institution as follows: (a) subject to paragraph (b), subsection (1) applies to the licensed financial institution if it operates a payment system; (b) if the licensed financial institution provides a payment service that is authorised under a licence issued under the Financial Institutions Act 1998, subsection (1) does not apply to the provision of that payment service. (4) A person who contravenes subsection (1) commits an offence. Maximum penalty: 2 million penalty units or imprisonment for 20 years, or both.

18 Application for licence

(1) An application for a licence under this Act must: (a) be in the prescribed form or the form otherwise approved by the Central Bank; and (b) contain or be accompanied by the information required by the form or otherwise prescribed; and (c) be accompanied by the prescribed fee; and (d) be filed with the Central Bank by an officer or agent of the applicant. (2) Before determining an application for a licence, the Central Bank may require that the application be supplemented by such documents or other information as the Central Bank considers necessary for assessing the suitability of the applicant for the grant of a licence.

19 Criteria for issue of licence

(1) The Central Bank may issue a licence to operate a payment system, or to provide a payment service or payment services, if the Central Bank is satisfied as to all of the following: (a) the applicant is a company incorporated or otherwise registered under the Companies Act 2009; (b) the applicant meets the capital adequacy requirements that are: (i) prescribed for the issue of a licence; and (ii) as specified by the Central Bank as a condition of the licence under subsection (3); (c) the applicant has suitable and sufficient technical and organisational skills for the operation of the payment system or the provision of the payment service or payment services; (d) the applicant has in place proper procedures and mechanisms for maintaining internal controls and for managing risk; (e) the applicant has in place proper procedures and mechanisms for: (i) keeping client funds separate and identifiable at all times; and (ii) preventing commingling of client funds at any time with the funds of third parties; and (iii) insulating client funds against the claims of other creditors of the applicant, particularly in the event of insolvency; (f) the applicant has a detailed strategy and business plan based on realistic financial projections for the following 5 years; (g) the persons comprising the board and management of the applicant are fit and proper persons for their positions; (h) the applicant protects against credit and liquidity risk at the time of the settlement of orders accepted by the system; (i) the issue of the licence is: (i) consistent with the maintenance of financial stability in Solomon Islands; and (ii) in the public interest; (j) the applicant satisfies any other prescribed criteria. (2) At its discretion, the Central Bank may determine in a particular case that one or more of the criteria specified in subsection (1) are satisfied by the imposition of licence conditions. (3) At its discretion, and after taking into account the factors set out in subsection (4), the Central Bank may specify, as a condition of a licence, capital adequacy requirements that differ from those prescribed. (4) The factors that the Central Bank must take into account for the purposes of subsection (3) are: (a) the type of payment system that is to be operated; and (b) the type of payment service that is to be provided; and (c) the volume and value of payments likely to be processed in the payment system; and (d) any other relevant factor.

20 Determination of application

(1) The Central Bank must determine an application for a licence within 60 working days after the application is complete. (2) For the purposes of subsection (1), an application is complete when: